On March 1, 2013, MOFCOM announced its decision to increase antidumping margins on imports of optical fiber from Korea.  This decision marks the latest twist in a case that illustrates the growing complexity of Chinese antidumping and countervailing (AD/CVD) proceedings, and the need for foreign producers subject to those proceedings to continue exploring their legal options even after an order is issued – and also to remain vigilant – for possible negative developments.  Part I of this Advisory focuses on the use of the “interim review” process by both sides of this case to adjust the margins assigned to the Korean companies; Part II will focus on the Chinese industry’s strategic use of the “sunset review” process to expand its protection under Chinese AD/CVD laws.

This case begins in 2005, when the Ministry of Commerce (MOFCOM) issued an AD order against imports of certain types of optical fiber from Korea, the United States and Japan.  Under governing WTO agreements, if an AD/CVD investigation ends with the issuance of an order, an administering authority will assign a margin – that is, an additional tariff – to each foreign producer.  With respect to the producers subject to the Korea order, MOFCOM calculated a dumping margin of 7.0 percent for LG Cable Ltd. and 13.0 percent for Optomagic Co., Ltd., the two companies involved in the investigation.

The company-specific rate issued in an AD/CVD order will then apply to all imports produced by that company unless that rate is modified through an interim review (or the order is revoked altogether through a sunset review).  In some countries, interim reviews are conducted automatically if a request is received from an interested party – either the foreign producer, its importer, or the affected domestic industry – and in some countries, the review is discretionary.  (In China, interim reviews are conducted at MOFCOM’s discretion.)   Where an interim review is conducted, the relevant government agency will gather more current data on sales prices, production costs, government subsidies, and so on, and on the basis of that data, will either increase or decrease the margin for the companies named in the review.

A statistical analysis of the interim review practice in China reveals two clear truths. First, MOFCOM rarely exercises its discretion to conduct an interim review.  While China currently has over 50 AD/CVD orders in effect, in 2011 and 2012 combined, MOFCOM initiated only 5 interim reviews.

Second, if a review is initiated, the outcome of the review is highly correlated with the party filing the request.  If MOFCOM conducts a review at the request of the domestic Chinese industry (presumably because the domestic industry believes the prevailing rate is too low), the result of the review has consistently been an increase in the margin.  By contrast, if a review is conducted in response to the request of a foreign producer (who presumably believes that the margin is too high), the result is a decrease to the margin.  This pattern suggests that the real battle is in persuading MOFCOM to initiate the review.  Once initiated, the result is fairly predictable.

The Korean Optical Fiber AD order is unusual because it has been the subject of not one but two interim reviews.  In 2008, MOFCOM conducted a review at the request of Optomagic Co., Ltd. which resulted in a decrease of its margin from 13.0 percent to 2.3 percent.  Thereafter, in 2012, the domestic Chinese industry countered with its own request for an interim review for both Korean exporters.  The result of that review was an increased dumping margin for LS Cable & System Ltd. (the successor to LG Cable Ltd.) and Taihan Fiberoptics Co., Ltd. (the successor to Optomagic Co., Ltd.) to 9.1 percent and 7.9 percent, respectively.  The fact that the fiber optic case has been subject to two interim reviews is extremely unusual, and suggests a high degree of continued activity by both the domestic industry and the foreign producers even after the issuance of the order.

As a side note, the results of the most recent interim review underscore the importance of complete reporting to MOFCOM in these proceedings.  In the final results, MOFCOM explains that it applied adverse facts available (AFA) when determining Taihan’s export price during the period of review.  AFA is an adverse inference used when an agency concludes that a party has not cooperated to the best of its ability, and nearly always results in a higher AD/CVD margin than would the use of the company’s own data.  In this case, MOFCOM concluded that Taihan excluded a significant sale to China from its reporting, and that the volume of this non-reported sale was large and that its value was low.  Moreover, in light of Chinese Customs data, MOFCOM concluded that there was a possibility that the company had not reported other sales.  Without access to the confidential record it is impossible to assess the basis for this conclusion, but MOFCOM’s final results make clear that complete and accurate reporting in these cases is critical.

The Optical Fiber case demonstrates that both the domestic and foreign indutries can remain active and engaged after the issuance of an AD/CVD order by MOFCOM, and both can use the administrative process to improve their commercial position with respect to the Chinese market.  Companies exporting merchandise to China subject to such orders should remain aware of these strategies.